Brokerage firm InCred Equities has downgraded ratings on SBI Cards and Payment Services to "Reduce" from "Add" following the increase in the risk weights by Reserve Bank of India.
Also, it has cut the target price on the stock to ₹600 from ₹1,000 per share earlier. The target price indicates a downside of more than 19% from the previous close of ₹742.60 per share on BSE on Monday.
The downgrade came after a recent RBI circular on increasing risk weight, which will impact SBI Cards adversely.
According to the brokerage, the new norms are impacting SBI Cards the most, with 100% of its portfolio witnessing an increase in risk weight.
With regards to borrowing from banks, SBI Cards again is the most impacted with 77% of its borrowings from lenders, which may become expensive in the coming quarters, the broking firm said in its research note.
Assume 4.1% capital consumption on an immediate basis, impacting growth & expect a gradual rise in the cost of funds to hurt margins, it added.
InCred is forecasting margins at around 11.5% for the financial year (FY) 2024-2026 as against 12% earlier.
Additionally, the brokerage house has moderated fee income assumption for SBI Cards amid rising competition, but it keeps the credit cost assumption at 6%
Also, it has slashed the average long-term profit after tax (PAT) growth estimate to 15% against 18% earlier, in its excess RoE (return on equity) calculations. It has reduced earnings per share (EPS) estimates by 12.8% for FY25 and by 17.2% for FY26.
Shares of SBI Cards and Payment Services Ltd were trading flat at ₹742.25, down 0.05%, on BSE at 10.38AM.
(Edited by : Asmita Pant)
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